Absa PMI rises for third straight month in December – but the signals are mixed

The Absa PMI nudged up slightly in December, to 53.1 from 52.6 in November, its third straight monthly bounce. Conducted by the Bureau for Economic Research and sponsored by Absa, the index is based on a survey of purchasing managers in the manufacturing industry, making it a key barometer of the sector’s health. 

In the third quarter (Q3) of 2022, South African manufacturing output grew 1.5%, contributing to the surprise 1.6% expansion of the economy that quarter after the 0.7% contraction in Q2.

So the PMI reading suggests that the manufacturing sector retained some resilience in Q4 in the face of the load shedding onslaught, though rolling blackouts still contained its potential.

“While the headline number is positive, the underlying picture is more mixed. Most concerning was the business activity index which deteriorated further in December,” Absa said in a statement. “Sustained and intense load shedding during the last month of 2022 was likely a key drag on the sector.” 

The business activity index fell to 45.2 from 49.5 and has not been above the neutral 50 mark since March of 2022, pointing to underlying weakness. 

And it must be said that the assertion that the headline number was “positive” is probably a stretch. A rise is obviously positive, but 53.1 on a scale of zero to 100 is barely a passing grade. That may say something about expectations regarding the South African economy: the bar has been set pretty low. 

The employment sub-index leapt a surprising 8.6 points to 54.3 in December, but it is a data point that is often erratic and not always a reflection of the realities on the factory floor. 

“While any indication of an increase in staffing levels is encouraging, we have seen temporary increases in the index before that did not correspond with sustained manufacturing employment growth in the official data. Indeed, given that activity remained poor, it is unlikely that actual employment will improve to this extent on a sustained basis,” Absa said. 

Moving into 2023, the sector has plenty of challenges. Rolling blackouts are already on track to beat records set last year, while global economic growth is widely forecast to slow down. Fuel prices have sharply declined and that will bring some relief. But storm clouds are gathering on the horizon. DM/BM